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Non-Profits and the Real Estate Industry
Term Paper ID:36190

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This paper examines the non-profit sector of the housing market with a particular emphasis ...... More...

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Paper Abstract:
This paper examines the non-profit sector of the housing market, with a particular emphasis on the real estate situation in Los Angeles. Market trends and the somewhat ambiguous role of non-profits in the housing market are discussed.

Paper Introduction:
Non-Profits and the Real Estate Industry Non-profit organizations and the real estate industry represent polaropposites when it comes to their respective missions Non-profits seek toserve a public good while the real estate industry exists to providehousing products and services for a profit The former provides services tomeet social needs that may not easily be quantifiable while the latter isultimately concerned only with the quantity of money left over for thosewho own the company after expenses are paid the proverbial bottom line There

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But evenwith this business downturn and a depressed housing market, a loss of 1.5%of from the area's job base during the decade from 199 to 2 , and thebuilding of only 119, total housing units (including replacement units)during the decade, there was still a slight net increase of 1.8% in thecost of housing. and Weinberg, C. To the biggest non-profit organizations in the United States, such asthe Bill and Melinda Gates Foundation with an endowment of approximately$27 billion dollars, or the Howard Hughes Medical Institute, whosefinancial wherewithal amounts to nearly $11 billion, such considerationsare completely irrelevant. This Year's Hottest Zip Codes. 7 % of thisMexican-American population lives in California or Texas. There areall kinds of fund-raising activities conducted by non-profit organizations,from bake sales to benefit concerts to the fund-raising campaigns engagedin by public radio and television stations to the Jerry Lewis telethon. There is no question of their not being on top of any trends inthe housing markets of which they are a part. "...Fiserv CSW is predicting that prices inthe greater Los Angeles area will increase by only 5.8 percent in 2 5,with slightly better appreciation in some L.A. They are also much morelikely than mainstream business enterprises to insist that the social,economic, and ecological impact on the neighborhoods in which they purchasereal estate are given more than the lip service they usually get. According to Burns there was a period from 199 to 1997 when localhouse prices fell 17% due to the economic depression in the area. The Public Value Scorecard: A Rejoinder and an Alternative to "Strategic Performance Measurement andManagement in Non-Profit Organizations" by Robert Kaplan. Thus in a sense we are comparing apples and oranges when we discussthe notion of non-profit organizations being competitive in the real estateindustry. According to Sarah Max, senior staff writer for CNN/Money,"Over the past five years home prices in the Los Angeles area appreciated125 percent, with prices in a handful of zip codes up nearly 2 percent"(2 5). Lastly, there is a great deal of networking between non-profitorganizations in the social service sector, because their functions areoften complementary. markets and price declinesin others. Of course they have real estate experts, investmentspecialists, and access to the best housing consultants and lawyers in thecountry. www.realestateconsultinmg.com/startegic/startegic2 2 7.html.Max, S. Large non-profit institutions like these don't just predict markettrends in the areas they are situated in, they influence them by their realestate decisions. They are as plugged into thelatest and best information on housing market trends as any for profit realestate company. Itmeant that they didn't necessarily have to monetize the value of theresults they intended to achieve. The poorer non-profits simply lose out; they can't afford to buy thehousing they need. Once again it is relevant to mention that the implication of non-profit organizations directly competing in a given real estate market byseeking to expand their share is not entirely relevant to the missions ofnon-profits, which most certainly does not include such directives in theircharter of service and mission statement. Non-profitorganizations in a sense do not compete with other players in the realestate market any more than any other prospective private purchaser,whether individual or corporate. The notion of non-profit organizations being competitive in the realestate industry needs to be critically examined before we can answer thequestion of what kind of relationship exists these two entities. 'There is anecdotal evidence that the market there isweakening,' said David Stiff, a senior economist with Case Shiller Weiss.'It hasn't worked its way into our model yet.' For that reason, the firmdeclined to give a forecast for individual zip codes in Los Angeles. Instead of having totwist themselves into the shape of a for profit enterprise, they could turntheir energies to doing what they shouldhave been doing from the outset: getting clear about the social resultsthey were trying to produce, the strategy that they thought would besuccessful in producing the results, and measuring the extent to which theywere being successful in implementing their strategy" (ibid.) Anyone even peripherally interested in the real estate market in theUnited States in the last few years knows that there has been an enormousboom in the industry. Discussing Robert Kaplan's Balanced Scorecard, Moore (2 3) pointsout that those in the non-profit sector were relieved to hear his pointthat they should be evaluated on different standards than those applied toprofit-making entities: "The fact that this discussion of ultimate goals, strategies toachieve them, and measurements to check on both these things could becarried on using multiple, non-financial metrics was a huge and welcome relief to the nonprofit world. If they have the money they buy what theywant. We argue that two fundamental differences between businessesand nonprofits make this assumption problematic: (1) nonprofits aremotivated by non-monetary goals that often dominate financialconsiderations, and (2) diversity in the nature of these goals means that anonprofit and its rivals may be motivated by very different objectivefunctions". CNN/Money. As Ritchie and Weinberg (2 5) point out, non-profits' truecompetitors are other non-profits, not private individuals or businesses."Although competition is recognized as a key challenge in strategicbusiness management, its operation is rarely studied in the nonprofitsector. Similar to their situation is the Bechtel Foundation branch inColumbus, Ohio, which caused a local furor a decade ago by buying up blocksof real estate adjoining their facility in order to expand, and in so doingdisplaced hundreds of mostly low income families. Los Angeles presents a unique demographic situation compared to othercities in the United States, and it affects the housing market non-profitorganizations must navigate in order to fulfill their real estate needs.While Los Angeles is the ultimate polyglot multicultural city, it now has amajority population of Hispanics, dominated by people of Mexican descent,who make up 63% of the U.S. http://money.cnn.com/pf/features/lists/topzipcodes/Moore, M. As far as capturing market share and financial resources, there areas many ways to do this as there are non-profit organizations. Non-profit organizations can be seen in this light as Daniel inthe lion's den, do-gooders trying to swim in shark-infested waters. And we should not forget also that whatever the mission statement ofthe non-profit organization, those charged with handling their investmentportfolios certainly do have their eye on the bottom line as much as anyfor-profit corporation. But the mainavenue to large endowments comes from either wealthy founders' gifts, suchas the Ford or Fulbright Foundations, or by the donations of wealthyindividuals or corporations. Universities with some ofthe largest endowments, such as Harvard and Columbia, have aroused similarcontroversies by engaging in comparable land grabs in the urban areasadjoining theircampuses. Realtors have access to data bases with amazingly revealinginformation about their clients, much of it controversial because it maycompromise the privacy of those whose demographic information is beingexamined. They are limited only by their by-laws and charter ofservice as to what real estate purchases they can make. This has alwaysbeen an Achilles Heel for the non-profits, who must justify theircontinuing funding by demonstrating that they are succeeding in fulfillingtheir mission of service, which is much more difficult to quantify than thefigure in the bottom line. The National Rifle Association uses massmailings, television shows, the sponsorship of hunter safety courses, anddonations to political campaigns to further their mission of arming everyAmerican. A shortage of available housing in relation todemand, and historically low interest rates have teamed up to create abubble in the housing market of monumental proportions. They will team up to serve the victims of disasters orcivil unrest because of overlapping, mandates to serve people in need. This was primarily caused by an increase in home ownershipfueled mainly by people from the 515, newly arrived immigrants ofMexican origin. But while there may some truth to the analogy when it comes to smallcommunity-based charities who are barely able to survive from donations,grants, and government programs, the fact is that non-profit organizationssuch as hospitals, retirement funds, nursing homes, labor unions, politicalorganizations, universities, foundations, religious organizations, andmuseums and their ilk are often major financial players with endowments inthe billions and enormous real estate holdings. Much of the growthin the price of housing has occurred in the Sun Belt, especially on theWest Coast. There is a public perception that among the least ethical occupationsafter one acknowledges lawyers, politicians, and used car salespeople, arerealtors. So the smaller, more inadequately funded non-profits are forced to either rent, or if they are lucky, to use propertydonated by their benefactors. Naturally non-profits with the wherewithal to be players in thereal estate market have similar access. While the price of rentals has not risen as rapidly asthe cost of real estate in general, it has still climbed considerably overwhat it was in the 199 s. A homeless shelter may pass out fliers or individually recruittheir destitute clients by sending teams into the blighted areas theyserve. But there are definitely signs that the local housing market in theCity of Angels is cooling off. The fact that the cost of housing hasrisen from 125% to 2 % in the last five years in the Los Angeles area hasobviously affected non-profit organizations looking to meet their housingneeds. A non-profit with sizeable financial resources,such as a labor union or retirement fund, may seek to leverage theirmonetary clout by cooperating with charities or non-profits with similarmissions in making their real estate investments. 2 5. Hispanic population (Burns, 2 5). Non-Profits and the Real Estate Industry Non-profit organizations and the real estate industry represent polaropposites when it comes to their respective missions. Underserved Ethnic Population Has Huge Profit Potential. The former provides services tomeet social needs that may not easily be quantifiable, while the latter isultimately concerned only with the quantity of money left over for thosewho own the company after expenses are paid - the proverbial bottom line. Their holdings, including considerable amountsof real estate, were donated by men who were each the richest theirrespective times. It meant that they would be allowed tomeasure intermediate as well as final results. The government has seen fit to encourage thiskind of giving by making the donations tax deductible. As the authors argue, non-profits do not fit the traditionalcompetition models used in the for-profit private sector, because theirorganizational goals and values are not primarily monetary. Thefederal, state, and local governments give billions of dollars a year tosupport some of the activities engaged in by non-profits. 2 5. How non-profit organizations get their clients varies as much astheir mission of service does. Previous research has implicitly taken the position that existingmodels of competition can account for the nonprofit case with only minoradaptations. It meant that they couldlook at multiple as well as single measures. But in 2 alone real estate prices in Los Angeles began to changeto the pattern of steady price rises that has characterized the interveningfive years in the area, rising 11%. Real estate values in the greater Los Angles area have skyrocketed inthe recent past. Hospitals, the police, and correctional institutions in Los Angeles'Skid Row are known to drop indigent homeless peole into notorious pocketsof dire poverty such as these because they know the social services run bygovernmental and nonprofit institutions are located there. Competition in the Nonprofit Sector: A Strategic Marketing Frameworkhttp://www.sauder.ubc.ca/faculty/divisions/marketing/docs/Model-Competition- for-the-Nonprofit-Sector.pdf. 'Weare very uncertain about what will happen to home prices in Los Angelesthis year,' Stiff added". ReferencesBurns, John, Real Estate Consulting. But we can also allow for thefact that in the real world the Sloan Cancer Center of New York City mightbe competing for the same choice real estate for their offices as the RedCross, or the Nature Conservancy, or the YMCA. May 2 3. Non-profits seek toserve a public good, while the real estate industry exists to providehousing products and services for a profit. took comfort in these ideas. It is no wonder that nonprofitfirms that had previously struggled with the challenge of developing"financial bottom lines"? Working Paper #18http://www.ksg.harvard.edu/hauser/PDF_XLS/workingpapers/workingpaper_18.pdf.Ritchie, R. This paper will focus on the trends and relationships between not-for-profit organizations and the real estate industry in Los Angeles, withreference to their relevance elsewhere.

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